Credit Scores: What’s Behind the Numbers?

Banks, finance companies, and credit unions evaluate loan applications based on a number of factors. One of the most important factors is the most familiar – an applicant’s credit score. The higher a person’s credit score, the stronger his or her reputation for financial responsibility and the more likely that he or she can get a loan with a low interest rate.

When evaluating car loan applications, lenders look at many factors, such as an applicant’s previous car loans (analyzing payment records and previous down payments), credit reports, employment history, income, and more. Still, a good credit score is one of the best indicators of your ability to get an auto loan.

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More About Credit Scores

Your credit scores will fluctuate over time and may differ from one credit bureau to the next. Each credit bureau gathers and stores data on you to use in calculating a credit score. They constantly update the information they have on you, meaning your scores change regularly. Moreover, the bureaus do not necessarily gather the same data about you, meaning you may have a different score from each agency.

Some of the major factors that affect credit scores include:

  • Payment history
  • Public records
  • The length of the credit history
  • Any new accounts
  • Inquiries into the credit file
  • The number of accounts in use

The Bureaus

Credit reporting agencies like Equifax®, TransUnion®, and Experian® all have proprietary metrics they use to establish credit risk scores for consumers. While these agencies’ systems of financial analysis varies, most risk models consider similar factors and share a common theme — generally, the higher the consumer score, the lower the credit risk.

FICO® Credit Scores

Another term you may hear is FICO Score. The Fair Isaac Corporation (FICO) introduced this score in 1989, and it is now used by 90% of financial lenders. The score takes into account the information held in credit reporting databases and applies more weight to late payments on mortgages, credit cards, and auto loans. The good news is that you can improve your FICO Score by paying down revolving debt like credit cards. When you pay down revolving debt, you lower your debt ratio, which makes lenders more comfortable with giving you a loan.

Watch the video below to learn more about how credit inquiries impact your credit score.

If you have more questions about credit scores and lending guidelines, please CONTACT an IFS Customer Service Representative at your convenience. We are here for you six days a week.

 

 

Equifax® is a registered trademark of Equifax, Inc.
TransUnion® is a registered trademark of TransUnion, LLC.
Experian® is a registered trademark of Experian Information Solutions, Inc.
FICO® and FICO® Scores are registered trademarks of Fair Isaac Corporation.